Questions and Answers of Business Accounting

The costs of putting goods into a saleable condition should be charged to(A) Trading account(B) Profit and loss account(C) Balance sheet(D) None of these.
Suppliers’ personal accounts are found in the(A) Nominal ledger(B) General ledger(C) Purchases ledger(D) Sales ledger.
The Sales Day Book is best described as(A) Part of the double entry system(B) Containing customers’ accounts(C) Containing real accounts(D) A list of credit sales.
Which of the following are personal accounts?(i) Buildings(ii) Wages(iii) Debtors(iv) Creditors(A) (i) and (iv) only(B) (ii) and (iii) only(C) (iii) and (iv) only(D) (ii) and (iv) only.
When Lee makes out a cheque for £50 and sends it to Young, then Lee is known as(A) The payee(B) The banker(C) The drawer(D) The creditor.
If you want to make sure that your money will be safe if cheques sent are lost in the post, you should(A) Not use the postal service in future(B) Always pay by cash(C) Always take the money in
When banking money in to your current account you should always use(A) A cheque book(B) A paying-in slip(C) A cash book(D) A general ledger.
A debit balance of £100 in a cash account shows that(A) There was £100 cash in hand(B) Cash has been overspent by £100(C) £100 was the total of cash paid out(D) The total of cash received was
£50 cash taken from the cash till and banked is entered(A) Debit cash column £50: Credit bank column £50(B) Debit bank column £50: Credit cash column £50(C) Debit cash column £50: Credit cash
A credit balance of £200 on the cash columns of the cash book would mean(A) We have spent £200 more than we have received(B) We have £200 cash in hand(C) The bookkeeper has made a mistake(D)
‘Posting’ the transactions in bookkeeping means(A) Making the first entry of a double entry transaction(B) Entering items in a cash book(C) Making the second entry of a double entry
A cash discount is best described as a reduction in the sum to be paid(A) If payment is made within a previously agreed period(B) If payment is made by cash, not cheque(C) If payment is made either
Discounts received are(A) Deducted when we receive cash(B) Given by us when we sell goods on credit(C) Deducted by us when we pay our accounts(D) None of these.
The total of the ‘Discounts Allowed’ column in the Cash Book is posted to(A) The debit of the Discounts Allowed account(B) The debit of the Discounts Received account(C) The credit of the
Sales invoices are first entered in(A) The Cash Book(B) The Purchases Journal(C) The Sales Account(D) The Sales Journal.
The total of the Sales Journal is entered on(A) The credit side of the Sales Account in the General Ledger(B) The credit side of the General Account in the Sales Ledger(C) The debit side of the Sales
Given a purchases invoice showing 5 items of £80 each, less trade discount of 25 percent and cash discount of 5 per cent, if paid within the credit period, your cheque would be made out for(A)
An alternative name for a Sales Journal is(A) Sales Invoice(B) Sales Day Book(C) Daily Sales(D) Sales Ledger.
Entered in the Purchases Journal are(A) Payments to suppliers(B) Trade discounts(C) Purchases invoices(D) Discounts received.
The total of the Purchases Journal is transferred to the(A) Credit side of the Purchases Account(B) Debit side of the Purchases Day Book(C) Credit side of the Purchases Book(D) Debit side of the
Credit notes issued by us will be entered in our(A) Sales Account(B) Returns Inwards Account(C) Returns Inwards Journal(D) Returns Outwards Journal.
The total of the Returns Outwards Journal is transferred to(A) The credit side of the Returns Outwards Account(B) The debit side of the Returns Outwards Account(C) The credit side of the Returns
We originally sold 25 items at £12 each, less 331/3 per cent trade discount. Our customer now returns 4 of them to us. What is the amount of credit note to be issued?(A) £48(B) £36(C) £30(D) £32.
Depreciation is(A) The amount spent to buy a fixed asset(B) The salvage value of a fixed asset(C) The part of the cost of the fixed asset consumed during its period of use by the firm(D) The amount
A firm bought a machine for £3,200. It is to be depreciated at a rate of 25 per cent using the Reducing Balance Method. What would be the remaining book value after 2 years?(A) £1,600(B) £2,400(C)
A firm bought a machine for £16,000. It is expected to be used for 5 years then sold for £1,000. What is the annual amount of depreciation if the straight line method is used?(A) £3,200(B)
In the trial balance the balance on the Provision for Depreciation Account is(A) Shown as a credit item(B) Not shown, as it is part of depreciation(C) Shown as a debit item(D) Sometimes shown as a
If an accumulated provision for depreciation account is in use then the entries for the year’s depreciation would be(A) Credit Provision for Depreciation Account, debit Profit and Loss Account(B)
Which of the following are not true? A Bank Reconciliation Statement is(i) Part of the double entry system(ii) Not part of the double entry system(iii) Sent by the firm to the bank(iv) Posted to the
Given a desired cash float of £200, if £146 is spent in the period, how much will be reimbursed at the end of the period?(A) £200(B) £54(C) £254(D) £146.
When a petty cash book is kept there will be(A) More entries made in the general ledger(B) Fewer entries made in the general ledger(C) The same number of entries in the general ledger(D) No entries
Which of the following do not affect trial balance agreement?(i) Sales £105 to A Henry entered in P Henry’s account(ii) Cheque payment of £134 for Motor expenses entered only in Cash Book(iii)
Which of the following are not errors of principle?(i) Motor expenses entered in Motor Vehicles account(ii) Purchases of machinery entered in Purchases account(iii) Sale of £250 to C Phillips
Errors are corrected via the Journal because(A) It saves the bookkeeper’s time(B) It saves entering them in the ledger(C) It is much easier to do(D) It provides a good record explaining the double
Which of these errors would be disclosed by the trial balance?(A) Cheque £95 from C Smith entered in Smith’s account as £59(B) Selling expenses had been debited to Sales Account(C) Credit sales
The following letter has been received from a client. ‘I gave my bank manager those audited accounts you prepared for last year. But he says he needs more information before he will agree to
Galloway Ltd has an authorised capital of 250,000 ordinary shares of £1 each.(a) At the end of its financial year, 30 April 20X8, the following balances remained in the company’s books after
The trading stock of Joan Street, retailer, has been reduced during the year ended 31 March 20X8 by £6,000 from its commencing figure of £21,000.A number of financial ratios and related statistics
If a trial balance totals do not agree, the difference must be entered in(A) The Profit and Loss Account(B) A Suspense Account(C) A Nominal Account(D) The Capital Account.
Harold Smart, who is a small manufacturer trading as Space Age Projects, is very pleased with his recently completed financial results which show that a planned 20% increase in turnover has been
You are given summarised information about two firms in the same line of business, A and B, as follows.Required:(a) Produce a table of eight ratios calculated for both businesses.(b) Write a report
Business A and Business B are both engaged in retailing, but seem to take a different approach to this trade according to the information available. This information consists of a table of ratios,
The annual final accounts of businesses are normally prepared on the assumption that the business is a going concern.Required:Explain and give a simple illustration of(a) The effect of this
One of the well known accounting concepts is that of materiality.Required:(a) Explain what is meant by this concept.(b) State and explain three types of situation to which this concept might be
A firm produces a standard manufactured product. The stages of the production and sale of the product may be summarised as follows:Required:(a) What general rule do accountants apply when deciding
State three classes of people, other than managers and owners, who are likely to need to use financial accounting information. Discuss whether you think their requirements are compatible.
(a) In accounting practice a distinction is drawn between the terms ‘reserves’ and ‘provisions’ and between ‘accrued expenses’ and ‘creditors’.Required:Briefly define each of the four
Bradwich plc is a medium-sized engineering company whose shares are listed on a major Stock Exchange.It has recently applied to its bankers for a 7-year loan of £500,000 to finance a modernisation
Explain what you understand by the accounting term ‘capital gearing’, showing clearly the benefits of, and the potential problems associated with high gearing.
What benefits can result through the use of ratios and what limitations should be imposed on any conclusions drawn from their use?
Which of the following is not an asset?(A) Buildings(B) Cash balance(C) Debtors(D) Loan from K Harris
Which of the following is a liability?(A) Machinery(B) Creditors for goods(C) Motor Vehicles(D) Cash at Bank
What are the two main objectives of budgeting?
What role do management accountants play in the budgetary process?
Which of the following best describes the meaning of ‘Purchases’?(A) Items bought(B) Goods bought on credit(C) Goods bought for resale(D) Goods paid for
Which of the following should not be called ‘Sales’?(A) Office fixtures sold(B) Goods sold on credit(C) Goods sold for cash(D) Sale of item previously included in ‘Purchases’
What makes information useful?
Which of the following statements is incorrect?(A) Assets – Capital = Liabilities(B) Liabilities + Capital = Assets(C) Liabilities + Assets = Capital(D) Assets – Liabilities = Capital
When the final accounts are prepared, the Bad Debts Account is closed by a transfer to the(A) Balance Sheet(B) Profit and Loss Account(C) Trading Account(D) Provision for Doubtful Debts Account.
A credit balance brought down on a Rent Account means(A) We owe that rent at that date(B) We have paid that rent in advance at that date(C) We have paid too much rent(D) We have paid too little in
A debit balance brought down on a Packing Materials Account means(A) We owe for packing materials(B) We are owed for packing materials(C) We have lost money on packing materials(D) We have a stock of
If we take goods for own use we should(A) Debit Drawings Account: Credit Purchases Account(B) Debit Purchases Account: Credit Drawings Account(C) Debit Drawings Account: Credit Stock Account(D) Debit
Capital Expenditure is(A) The extra capital paid in by the proprietor(B) The costs of running the business on a day-to-day basis(C) Money spent on buying fixed assets or adding value to them(D) Money
In the business of C Sangster, who owns a clothing store, which of the following are Capital Expenditure?(i) Shop fixtures bought(ii) Wages of assistants(iii) New van bought(iv) Petrol for van.(A)
A Bank Reconciliation Statement is a statement(A) Sent by the bank when the account is overdrawn(B) Drawn up by us to verify our cash book balance with the bank statement balance(C) Drawn up by the
What should happen if the balance on a Suspense Account is of a material amount?(A) Should be written off to the balance sheet(B) Carry forward the balance to the next period(C) Find the error(s)
A Provision for Doubtful Debts is created(A) When debtors become bankrupt(B) When debtors cease to be in business(C) To provide for possible bad debts(D) To write off bad debts.
Given opening debtors of £11,500, Sales £48,000 and receipts from debtors £45,000, the closing debtors should total (A) £8,500(B) £14,500(C) £83,500(D) £18,500
In a Sales Ledger Control Account the Bad Debts written off should be shown in the account(A) As a debit(B) As a credit(C) Both as a debit and as a credit(D) As a balance carried down
Given cost of goods sold £16,000 and margin of 20 per cent, then sales figure is(A) £20,160(B) £13,600(C) £21,000(D) £20,000
If cost price is £90 and selling price is £120, then(i) Mark-up is 25 per cent(ii) Margin is 331/3 per cent(iii) Margin is 25 per cent(iv) Mark-up is 331/3 per cent(A) (i) and (ii)(B) (i) and
A Receipts and Payments Account is one(A) Which is accompanied by a balance sheet(B) In which the profit is calculated(C) In which the opening and closing cash balances are shown(D) In which the
Given opening capital of £16,500, closing capital as £11,350 and drawings were £3,300, then(A) Loss for the year was £1,850(B) Profit for the year was £1,850(C) Loss for the year was £8,450(D)
If creditors at 1 January 20X3 were £2,500, creditors at 31 December 20X3 £4,200 and payments to creditors £32,000, then purchases for 20X3 are(A) £30,300(B) £33,700(C) £31,600(D) £38,700
If opening stock is £3,000, closing stock £5,000, sales £40,000 and margin 20 per cent, then stockturn is(A) 8 times(B) 71/2 times(C) 5 times(D) 6 times
Prime cost includes(i) Direct labour(ii) Factory overhead expenses(iii) Raw materials consumed(iv) Direct expenses(A) (i), (ii) and (iii)(B) (ii), (iii) and (iv)(C) (i), (iii) and (iv)(D) (i), (ii)
Which of the following should be charged in the Profit and Loss Account?(A) Office rent(B) Work in progress(C) Direct materials(D) Carriage on raw materials
In the Manufacturing Account is calculated(A) The production costs paid in the year(B) The total cost of goods produced(C) The production cost of goods completed in the period(D) The gross profit on
The recommended method of departmental accounts is(A) To allocate expenses in proportion to sales(B) To charge against each department its controllable costs(C) To allocate expenses in proportion to
Where there is no partnership agreement then profits and losses(A) Must be shared in same proportion as capitals(B) Must be shared equally(C) Must be shared equally after adjusting for interest on
If it is required to maintain fixed capitals then the partners’ shares of profits must be(A) Debited to capital accounts(B) Credited to capital accounts(C) Debited to partners’ current
You are to buy an existing business which has assets valued at buildings £50,000, Motor vehicles £15,000, Fixtures £5,000 and Stock £40,000. You are to pay £140,000 for the business. This means
Assets can be revalued in a partnership change because(A) The law insists upon it(B) It helps prevent injustice to some partners(C) Inflation affects all values(D) The depreciation charged on them
Any loss on revaluation is(A) Credited to old partners in old profit-sharing ratios(B) Credited to new partners in new profit-sharing ratios(C) Debited to old partners in old profit-sharing ratios(D)
In a limited company which of the following are shown in the Appropriation Account?(i) Debenture interest(ii) Proposed dividend(ii) Transfers to reserves(iv) Directors’ remuneration(A) (i) and
The Issued Capital of a company is(A) Always the same as the Authorised Capital(B) The same as Preference Share Capital(C) Equal to the reserves of the company(D) None of the above
A company wishes to pay out all available profits as dividends. Net profit is £26,600. There are 20,000 8% Preference shares of £1 each, and 50,000 Ordinary shares of £1 each. £5,000 is to be
Working Capital is a term meaning(A) The amount of capital invested by the proprietor(B) The excess of the current assets over the current liabilities(C) The capital less drawings(D) The total of
If £500 was shown added to Purchases instead of being added to a fixed asset(A) Net profit only would be understated(B) Net profit only would be overstated(C) It would not affect net profit(D) Both
A cheque paid by you, but not yet passed through the banking system, is(A) A standing order(B) A dishonoured cheque(C) A credit transfer(D) An unpresented cheque.
Which of the following should be entered in the Journal?(i) Payment for cash purchases(ii) Fixtures bought on credit(iii) Credit sale of goods(iv) Sale of surplus machinery.(A) (i) and (iv)(B) (ii)
The Journal is(A) Part of the double entry system(B) A supplement to the Cash Book(C) Not part of the double entry system(D) Used when other journals have been mislaid.
What is the difference between job costing, batch costing, project costing, and process costing?
Owing to staff illnesses, the draft final accounts for the year ended 31 March 20X9 of Messrs Stone, Pebble and Brick, trading in partnership as the Bigtime Building Supply Company, have been
The above partners have always shared profits and losses in the ratio: Pitt 4: Lamb 2: Soul 1. From 1 January the assets were to be revalued as the profit sharing ratios are to be altered soon.The
Fitch and Wall have been in partnership for many years sharing profits and losses in the ratio 5 : 3 respectively. The following was their balance sheet as at 31 December 20X2.On 1 January 20X3, they
The balance sheet of A Barnes and C Darwin at 31 March, 20X8 is as follows:The partners share profits and losses: Barnes three-fifths and Darwin two-fifths. At the date of the above balance sheet, it
From the following information, prepare the manufacturing, trading and profit and loss account for the year ending 31 December 20X6 and the balance sheet as at 31 December 20X6 for the firm of J
The accounting records of the Happy Tickers Sports and Social Club are in a mess. You manage to find the following information to help you prepare the accounts for the year to 31 December
A business both buys loose tools and also makes some itself. The following data is available concerning the years ended 31 December 20X7, 20X8 and 20X9. 20X7 Jan 1 Dec 31 20X8 Dec 31 20X9 Stock of

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